Fact Check: How the Part B International Pricing Index Model replaces market competition with government-set prices

One of the most common misconceptions about the administration’s proposed Part B International Pricing Index (IPI) Model is that it would improve competition in Medicare. However, mounting evidence shows that these far-reaching changes would upend Part B’s current market-based system that has successfully balanced access and competition for more than a decade.

Medicare Part B’s current reimbursement system uses the Average Sales Price (ASP), which reflects most rebates and discounts that providers and payers already negotiate with manufacturers. This system has worked well to control costs year-over-year while balancing access and continued medical progress. In fact, evidence shows that the ASP system saved the government and seniors $4.4 billion alone in its first year of implementation and $132 billion from 2005 to 2017. The Centers for Medicare and Medicaid Services has stated quarter after quarter that ASP for many of the top 50 Part B medicines has decreased or been unchanged due to a number of competitive market factors at work. For instance, in the fourth quarter of 2018, the average payment for the top 50 Part B medicines decreased by 0.8%.

In contrast to the market-based health care system we have in the United States today, like the ASP system in Part B, some in Washington want the U.S. government to implement a form of government mandated price setting called international reference pricing.

Fact: Government price setting is the opposite of market competition.

The IPI Model, for example, would rely on prices set by foreign governments to determine reimbursement for Part B medicines. It would set arbitrarily low prices for innovative medicines instead of aligning prices with market value.

American biopharmaceutical manufacturers already face an uneven playing field in many overseas countries due to harmful policies, like international reference pricing. These policies prevent American innovators from securing value for their products. Many government bodies, including the United States Trade Representative, the Department of Commerce and the Council of Economic Advisors, among others, have acknowledged that these foreign policies stifle innovation and reduce competition in the marketplace.

According to the White House Council of Economic Advisers, prices of products in a free market “reflect their value as opposed to prices in government-controlled markets, which reflect political trade-offs.” Further, the U.S. Department of Commerce states that “While the mechanics of price-control regimes differ widely from country to country, the end result is the same. Pharmaceutical companies are prohibited from charging a market-based price for the products they manufacture.”

Instead of moving forward with international reference pricing proposals like the IPI Model, we urge policymakers to advance patient-centric reforms, grounded in the market competition that’s been a hallmark of the U.S. health care system.

Nicole Longo Nicole is director of public affairs at PhRMA focusing on Medicare, 340B, importation and more. She previously worked for a D.C.-based public affairs firm where she assisted a wide range of clients with communications efforts on everything from trade policy to agriculture policy to health care policy. Outside the office, Nicole can be found trying new restaurants (usually Italian), taking an occasional barre class and cheering on the Cincinnati Bengals.